A luxury-auction stock as a cross-market bubble warning

A proxy between art bids and funded markets

This case uses three historical peaks in a luxury-auction-house stock, plus a later Relative Strength Index sequence, to teach a cross-market reading of extravagant art bids.

Editorial framing: treat the auction-house stock as a warning proxy. First locate which asset class is funding the bids. Then ask whether the proxy's relative strength and price-indicator divergence are already fading before the funded market itself rolls over.

The 1989 Japan sequence

A 1989 luxury-auction-house share peak preceded the Nikkei 225 all-time high. The auction-house stock had already fallen more than 30 percent by the time that equity index topped.

After the Japanese equity peak, a Japanese buyer paid 82.5 million dollars for a van Gogh portrait in May 1990. That sale followed an earlier 39.9 million dollar van Gogh still-life sale in March 1987, a price more than three times the prior painting-price record of 10.4 million dollars.

Editorial note: headline art prices can still print after the funding equity market has peaked. In this sequence the auction-house share price weakened first.

Later peaks against U.S. equity indexes

The same auction-house stock later peaked in April 1999, eleven months before the S&P 500 and Nasdaq Composite. It peaked again on 11 October 2007 as the S&P 500 was topping and was cut nearly in half a little over three weeks later.

From the October 2007 high into the subsequent trough, the auction-house stock declined more than 88 percent, compared with a 57 percent maximum drop in the S&P 500 over a similar period.

Relative strength versus an equity proxy

From June 1997 to the April 1999 peak, the auction-house stock rose 160 percent versus less than half that gain in an S&P 500 exchange-traded fund proxy. In 2006-07 it rose more than 240 percent versus a much smaller move in the same proxy.

Editorial reading: Intermarket analysis here is a comparison of pace, not a claim that art causes equity tops. The question is whether luxury bids are being funded by an equity advance that the auction proxy has already outpaced.

Relative Strength Index and price-indicator divergence

Seven-period Relative Strength Index on the auction-house stock showed negative divergence well ahead of later price peaks, including a fresh negative divergence that began nearly a year before the April 2011 high.

Editorial reading: the oscillator sequence is a second check after the funding-market map. A later price high in the auction proxy with fading Relative Strength Index is the condition to study, not a timed exit.

Identify the funding market

A May 2011 interview described recent art-auction bidding as tepid and warned of a downtrend in art prices. The teaching point was to identify which stock, real-estate, or commodity market was funding extravagant art purchases as a candidate bubble.